Panel takes a second whack at military pensions

Military members and retirees have more financial darts to dodge after a second bipartisan task force on reducing the nation's debt unveiled a different set of cost-cutting recommendations.

The Debt Reduction Task Force, co-chaired by former Republican Sen. Pete Domenici and economist Alice Rivlin, takes sharper aim at the military community, including active duty forces still at war in Afghanistan.

In the unlikely event Congress approves the Domenici-Rivlin plan for cutting military retirement, members who haven't served more than 15 years would find themselves under a cheaper, "more flexible" and complex plan.

Proponents argue that many more members under the proposed plan would qualify for some retirement, at age 60, if they serve 10 years or more. But completion of a traditional 20-year career no longer would qualify for an immediate annuity on leaving service. Retired pay would begin at age 57.

Debt Panel II, as it might be called, began its work in January at the Bipartisan Policy Center, a Washington think tank founded by four former Senate majority leaders. Like last week's report from the National Commission on Fiscal Responsibility and Reform, co-chaired by Alan Simpson and Erskine Bowles, this report warns of an approaching debt tsunami that could destroy America prosperity if government spending isn't slashed and taxes raised.

Both reports call for cutting military retirement and having TRICARE beneficiaries pay more out of pocket for coverage. But the Domenici-Rivlin panel would wield a shaper knife on both major benefits.

On retirement, Debt Panel II embraces reforms proposed by the 10th Quadrennial Review of Military Compensation in 2008. The idea is to allow more members to earn some retirement while slashing overall program costs.

Two of four features — a defined annuity and a government-funded Thrift Savings Plan with vesting after 10 years — would apply to all members who get pushed under the new plan.

The annuity formula is familiar at 2.5 percent of average annual basic pay (but for their highest five earning years not the highest three average) multiplied by total years served. Payments would start at age 60 for those who serve 10 to 19 years and at 57 for those who serve 20 or more.

Government contributions to TSP accounts would start in year two and equal 2 percent of basic pay. They would climb to 3 percent in years three and four, to 4 percent in year five, and to 5 percent thereafter.

"Under such a plan," the panel reports, "current pay will have to rise to make up for the reduced incentive for members to remain in service. Even with such adjustments, however, this reform is projected to reduce the retirement system's cost by at least 50 percent."

The panel's recommendations also target TRICARE. Domenici and Rivlin note that TRICARE fees haven't been raised since they were set in 1995. At that time, they covered 27 percent of program costs. Now the frozen fees cover only 11 percent. And Medicare-eligible retirees, the report says, "currently do not share in their TRICARE costs."

So Debt Panel II says TRICARE fees for working-age retirees should be raised high enough to again cover 27 percent of costs. A pay expert who worked for the task force said the plan assumes that enrollment fees for TRICARE Prime, the managed care option, would rise from $460 a year for families and $230 for individuals to tiers based on gross retired pay.

For example, a married retiree with less than $20,000 in annual retired pay would pay $730 in year one, $900 in year two. The increases would stop in year five when the yearly fee hit $1,260.

Those with retired pay of $20,000 to $40,000 would pay more. The highest enrollment fees, for those drawing more than $40,000 in retired pay, would top off in year five at $2,460, or $2,000 higher than they pay now.

The rates then would be adjusted to keep pace with inflation.

Fees for outpatient visits would more than double, to $28. And working-age retirees using the fee-for-service TRICARE Standard plan or TRICARE Extra would be charged an enrollment for the first time of $150.